CSRC Further Tightens Rule on 'Backdoor Listings' Through Shell Company Reorganization
Yicai Global
/SOURCE : Yicai
CSRC Further Tightens Rule on 'Backdoor Listings' Through Shell Company Reorganization

(Yicai Global) July 4 -- Just two weeks after introducing the toughest regulatory policy to date on so-called backdoor listings, China's securities regulator has issued a new rule requiring all public shell corporations to hold press briefings after announcing reorganization plans.

The China Securities Regulatory Commission (CSRC) will continue to tighten regulations on listings through reorganization in order to curb speculative buying of shell resources through full information disclosure, according to an official.

The Shanghai and Shenzhen stock exchange on June 30 released guidelines on the press conferences. First, all organizations and individuals involved in the reorganization and listing should attend; second, the listed company should guarantee the independence and professionalism of the media present; third, the event should be broadcast live online; fourth, strict provisions are set out regarding announcements before to the briefing, minimum press conference length, and the Q&A session; and fifth, relevant information should be provided by all parties concerned, using factual and easy descriptions.

Speculation in shell resources among companies involved in listing and reorganization deals has become increasingly serious since last year. It is said that share prices of target companies in such deals rose 112 percent on average in 2015. The share price of one shell company surged almost 11-fold. Furthermore, a growing number of companies failed to deliver on their promises on performance made before the reorganization, and some did not pay the promised compensations.

On June 17, the CSRC released a new policy on backdoor listings, prohibiting financing for listing through reorganization and stipulating that controlling shareholders and actual controllers found in violation of the law or regulations will be prohibited from selling their shell companies for three years. The new regulations also reinforced the responsibilities of independent financial advisors for the reorganization.

The CSRC subsequently took on about 1,000 registered certified public accountants drawn from a number of accounting firms to review all listings through reorganization following release of the new policy.

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